Sorry for long absence, I’m not dead, just been otherwise engaged. I am currently writing ‘The story of Asset Management: the first ten years’ (1984 – 1993) and as I read back through my old journals, it is easy to see why asset management has captivated me for so long and I thought some of the stories might captivate you, too. For example, try this:
1988 Scene: NSW Parliament House
In 1988 I attended a very heated debate on accrual accounting presented at the NSW Parliament House for elected members and selected others. It was memorable for a fight that almost broke out in the house. After much discussion on the pros and cons, one section of the audience was showing considerable disquiet. Eventually one of the group, a politician, stood up and angrily and loudly stated “If you reveal accrued liabilities we will be forced to do something about them”.
At this, the accounting professor on the platform, Bob Walker, replied neutrally “Accrual Accounting is simply an accounting system, it provides information, what you do with the information is up to you”. This was too much for the highly agitated politician who shouted “You’re just like Pontius Pilate, washing your hands of the whole affair”. Cheers broke out from that section of the audience.
What can we learn from this?
Now the academic was correct, if naive. It is true that accounting systems provide information that enable but do not enforce action. However awareness of information can be a propelling force to action, which the politician instinctively recognised. It is the old ‘ignorance is bliss’ argument, if no-one knows something needs to be done, then you cannot be blamed for not doing it. Once the facts are in the public domain, though, they may be far more difficult to ignore.
The information we develop as asset managers also presents imperatives to action – after all that is why we research, analyse and develop it. So we must be prepared for, and learn how to deal with, reactions like that of our angry politician and not go into the fray unaware. Yet how many times do we do precisely that?
The way in which our data or facts are presented is important, too. There may be no difference – in point of fact – between the glass that is half empty and the one that is half-full but the connotations are widely different. The truth is that facts can never ‘speak for themselves’. The language they speak and the message they give depends crucially on the way they are organised and presented. And this organisation and presentation is what politics is all about – influencing reactions. This is as true of internal, departmental politics as it is of larger scale national and international events.
We have developed a poor habit: decrying something as ‘just politics’ as if by doing so we can ignore it. But everything is politics! Better to learn how to play the game. That is, the game of presenting our information in such a way that the reaction we get is the one that we want.
We are currently working to justify the spend for improving our AM program. We would like to utilize other utility benchmarks for efficiency, productivity & other improvements from Asset Management implementation. We would use this to estimate what monetary value we can expect from improvements to operations. Thanks!
Always glad to hear from you, and we can send you the benchmark data we have.
However… looking to long-term, integrated, whole life cost-based Asset Management for short term operational savings is maybe not the place to look for benefits, unless you can already see inefficiencies in maintenance spending. Thinking more in terms of planned, proactive maintenance rather than depending on reactive maintenance may save a lot of trouble, but it is not guaranteed to save on budget. The benefits of being more proactive are more likely in terms of better customer service and managing risks so they do not cause you issues down the road.
Asset Management might be more realistically promoted as better customer service with the limited resources an organisation has; optimising effort so you target capital where it is really needed (and not wasted where it is not needed); better community, regulator and government trust in the capability to deliver what is required now and into the future.
That an organisation seeks immediate operational savings can be a symptom of pre-Asset Management thinking – thinking in terms of today’s budgets rather than service, risk & the longer term. The problem is that people may not see that poor customer performance, stakeholder mistrust and high risks actually do cost a lot of money, but they aren’t always accounted for. (Until, suddenly, in a crisis, it’s obvious how very much they cost…)
Happy to support in any way we can – I hope this might be useful!
Benefits of good Asset Management can include higher profits and share value, lower insurance premiums, getting out of a catastrophe intact – but does it ever save on next year’s budget?
Maybe through analysing the data and realising how inefficient you are – anyone actually done this?
And – while we’re asking – did anyone ever save money on implementing a work management IT system (as opposed to making it easier to organise maintenance tasks)?
Differences are good; understanding them helps us develop. So here, in a few words, I look at why – and how – the UK and Australian approaches to Asset Management differ, by considering how they started – with water.
NOTE: If you have early experience of these approaches please add your ideas in the comments section .
In the UK, asset management started with the privatisation of the water industry in 1989. The rationale for privatisation was to increase the quality of the service and the route to this was seen to be by directed capital expenditure. Ofwat, the regulator, set water prices high to enable the necessary investment and capital spending was the focus of Ofwat regulation. Water companies’ asset management plans set out the rationale for their capital spending, new and renewal, to meet the needs of the regulator. Thus their focus on spending capital to improve service.
In Australia, asset management also started with the water industry, but the impetus was very different. A long term modelling exercise for the water industry in 1983 made it clear that the cost of maintaining current water services would have to rise steeply, as assets aged and needed renewal. The same modelling was then extended to all other infrastructure holdings in the State making it clear that the combined renewal demands of all agencies would, within 15 years, completely overwhelm the state’s funding ability. So, in 1987 the SA Parliament set up an Asset Management sub-committee and the Government created an Asset Management taskforce to consider ways of reducing the renewal costs to a manageable level by a combination of changes to planning, management, maintenance and financial policies and practices.
Thus, whereas the focus of asset management in the UK with the water industry (and later other industries),was how to fundcapital renewal, the focus of asset management in South Australia, and then across Australia generally, was in how to avoid having to fund so much capital renewal.
The difference between the two approaches became clear in 1995 when the South Australian Government, in an endeavour to create international export markets for its water industry skills and services, offered a 15-year management contract to an international company that could expand the state’s water industry exports and at the same time reduce management costs. The Government made it clear that it was well satisfied with its current level of service and just wished to reduce cost, not increase standards. However when the UK water industry companies (and the French) were asked to demonstrate their asset management abilities, none could offer any evidence of actions taken to manage and reduce costs and, indeed, seemed somewhat perplexed by the question and focused only on what they had done by way of capital expenditure to raise services. During pre contract negotiations they consistently re-iterated their claims for capital enhancement and resisted discussion of cost reduction.
These two different approaches to asset management have continued. They both have strengths – and weaknesses. The Australian approach needs more attention to evaluating and prioritising capital projects (the main focus of Talking Infrastructure). The UK approach needs more attention to management cost reduction through better planning, maintenance and financial practices.
We now have a Publicationssection. Our first highlighted publication is Building an Asset Management Team by Ruth Wallsgrove and Louis Cripps. It’s available for Kindle for just a few dollars, and you can read it on eReaders, phones and tablets.
Building an Asset Management Team is a practical and lively guide for anyone who needs to do infrastructure asset management. It tackles who you need and why you need them.
Asset Management is increasingly important, legally mandated in many countries. ISO 55000 defines AM as the ‘coordinated’ activities of an organization to realize value from its assets. But longer term co-ordinated asset plans and strategies take real effort and skills. You can’t just think things better.
To succeed, you require good business understanding, broad technical knowledge of the assets, analytical skills, and great facilitation & communication…. Instead of searching for a platypus, it’s easier to build a complementary team.
Invaluable if you are developing a business case for setting up an AM team, considering where to locate the team in your structure, or how to attract and keep the right staff.
Proceeds of the sales of this book go to Talking Infrastructure. We are a not- for-profit association and we do not charge for membership, so if you would like to support us – and support yourselves – please consider buying this book, and recommending it to your colleagues and asset management associations. Find 5 excerpts from this book by putting ‘AM Teams’ in the search bar.
“The farther back you can look, the farther forward you are likely to see” Winston Churchill
Until around 1996 the terms ‘Asset Management’ and ‘Strategic Asset Management’ were practically synonymous. But with the increasing popularity of the term ‘Asset Management’ to describe a wide variety of activities, as described in Pt 1, there was a need for a term that could differentiate decision making from the doing so, in January 1999, when the Asset Management Quarterly became fortnightly and thus needed a name change, I chose “Strategic Asset Management”, popularly known as SAM.
This was to stress that Asset Management wasn’t maintenance and reliability, or capital acquisition, or Treasury asset sales or many of the other associated activities, but rather what later became known (in ISO 55,000) as ‘the alignment of asset activities with the goals and objecitves of the organisation’
The first issue of SAM, January 1999, explained the name change, and in doing so, focused on what differentiates asset management from what went before.
“The real key to being strategic is where you focus your attention. If you focus on what you are doing you are carrying out an operational task; if you focus on how you are doing it, seeking to ‘tweak it’ or do it better, then you are engaged in a tactical activity. Both of these are necessary and important. However, they are not strategic. The strategic task is the one that focuses on the outcome, or the purpose….What constitutes a ‘better’ outcome, however, is not for the maintenance manager to decide. A ‘better’ outcome is one that moves the agency in the direction of its strategic vision.
By way of illustration, take the construction of a new hospital. If the questions you are asking yourself are ‘what is the purpose of this new hospital; what needs are we providing for, should we be providing them or should they be provided by others, or should they not be provided at all; is a new hospital required or are there better means?’, then you are focussing on the outcomes – ie being strategic.
Asking yourself ‘should this construction be carried out as a ‘design-construct’, ‘build-own-operate’ or some other form of contract’ is asking tactical questions. If you ask ‘how do I ensure this construction comes in within time and budget and is of the right quality’ then you are engaged in an operational task.
Thus ‘Strategic’ is not the same as ‘Important’.ALL aspects of asset management are important.”
In January 2014, the first international standard in asset management, ISO 55,000 was launched, and with this, we came to the end of the beginning of Asset Management. No longer a novelty, a new-comer; Asset management arrived.
In Australia, interest in asset management arose as the result of a series of eight parliamentary reports in South Australia in 1986/1987 modelling the likely cost and timing of renewing all the State’s major infrastructure assets.
The projected costs were so large that they would have absorbedthe State’s total capital budget within the next 10 years if urgent action was not taken.To address this problem, the recommendations in the reports covered possible planning and accounting reforms as well as engineering and maintenance changes.
Following the Public Accounts Committee’s Reports, a major SA Government Task Force was established that reviewed, then agreed and reinforced all the ideas presented in the reports.This led to the formation of a Cabinet sub-committee to consider the issues raised, This provided high level impetus for the development of asset management.
Further support was provided by the Auditors-General who were appalled to find that no public sector department. not even the statutory authorities, had decent asset registers and they made this a requirement.
But the most significant change was that led by the Australian Accounting Standards Board. At this time the board covered accounting standards in both the private and the public sectors. The private sector used commercial standards with accrual accounting but the public sector used cash accounting. The board wanted to standardise on accrual accounting for both but was concerned about how this would be received. When it learnt that the Parliamentary Public Accounts Committee in South Australia was promoting the idea of accrual accounting to better understand and deal with infrastructure asset management, it was encouraged to push ahead. Within two years of the release of the final PAC report, the board had released Exposure Draft 50, the model of accrual accounting for local government.
The introduction of accrual accounting meant that local, state and federal government departments were required to move from their previous practice of simply recording annual cash in and cash out, to establishing balance sheets and recording, for the first time, the depreciated value of their infrastructure and other assets,
You might think that an accounting change would be of no interest to maintenance engineers. Fortunately @Roger Byrne was not your ordinary maintenance manager. He had already been in the habit of including economic and planning issues in briefing notes for his clients and he quickly seized on the opportunity this change presented for maintenance engineers.
It was these briefing notes that later provided the content for the first local government asset management manual which subsequently became the IIMM we all use today.So through top down interest and bottom up capacity building, Australia took an early lead in the development of asset management.
The Parliamentary Reports created a lot of interest Australia wide. No other state was prepared, or even able, to duplicate the research for their own constituency but all infrastructure agencies recognised that the conclusions reached applied as much to them as it did to their South Australian counterparts. The CSIRO’s Engineering and Construction division took an active interest, as did State Treasuries and the Auditors-General.
With these organisations, I continued to develop the ideas that had arisen and, after advising governments, commissions of audit, and infrastructure agencies themselves, I created ‘The Asset Management Quarterly’ publication in 1994 to share with others what I was learning. Then, in 1996, noting that lots of interesting things were being done in the name of asset management – but nothing was being documented, I launched the International Asset Management Competitions where the awards went to the best documentation of good asset management practice. They ran between 1996 and 2000 and in 1998 AMQ International launched the world’s first asset management website with information on asset management freely available to all.
The term ‘asset management’ started to become very popular and everyone wanted to get in on the act. One day, flying from Sydney to Canberra my seat companion described herself as an asset manager – on questioning it turned out that she was actually a real estate developer!Once off the plane and into a taxi, on the taxi radio I heard an advertisement for ‘asset management services’ – which turned out to be office cleaning! Yes, asset management had become the buzzword‘de jour’.
To be continued….
I am currently working on a book about our beginnings and would love to speak with anyone about their recollections pre 2014.
Please leave your name below and I will contact you.
It was 2016 and I was engaged to train Auditors-General in the Pacific area in how to approach infrastructure performance audits. Their audit offices, like their countries, were not well resourced and they could ill afford to waste time and resources. It was important that they focused on the key issues and got their messages across to decision makers. With my colleague, Kerry McGovern, I spent a week in Port Moresby. At the closing party I was honoured with the title ‘Mama’. I thought this was simply a recognition of my age, but no, “mama” meant a wise woman who leads a village. I was enchanted! Who would not want to be wise and lead a village? And is this not what councils do?
So when approached last week to help the UN who are preparing a manual to assist local governments in under-developed countries struggling to adopt AM, I was happy to oblige. I spoke with Kerry and we prepared out ‘top dozen’, as follows.
What needs to be added?
Build with your own labour and your own local materials. This will ensure you have the skills and ability to maintain what you build.
Learn to say ‘No’ when donors offer to build something for you with their labour, or to use imported materials when local alternatives are available. Always seek out alternative practices that use local. Welcome financial assistance if, and only if, it strengthens the ability of your own people in the construction, operation and maintenance of the new assets. That is necessary to ensure that the assets will remain functional.
Prioritise. Do not accept ‘nice to have’ assets, such as sports stadia or entertainment centres, even as donations, if you have more critical requirements in power, water, roads or communications.
There is no such thing as a ‘free asset’. Every asset costs you. Not only does it require continuous operational costs such as lighting/heating/cleaning, but it will distract the attention of high level decision makers away from other issues.
‘Best practice’ and ‘high tech’ can be deceptive. The real ‘best practice’ is the one that you have the skills and abilities to apply over the longer haul. The same for ‘high tech’. The more complicated the technology the more chances are that something will go wrong and that you will be unable to fix it without outside help. And that help may not be available when needed.
Give your Auditors-General responsibility for auditing the performance of all public infrastructure for both effectiveness and efficiency – and fund and train them in the ability to do so.
Be clear on what is to be achieved. Assist the Auditors-General by ensuring that all infrastructure proposals – whether with local or donated funds – state clearly the expected outcomes, in addition to cost and time.
Identify who is going to operate the asset, who is going to maintain the asset – both scheduled maintenance, and unscheduled maintenance and the costs of enabling the operation and maintenance over the entire life of the asset. Then, with that estimate to hand (and preferably arrived at with input from the people who are going to do it) identify the source of funds to pay for all this.
If using loan funds to pay for the asset, add interest and redemption payments to the operating and maintenance costs. Ensure you factor in the administrative costs of meeting lender requirements, including the cost of training staff to meet them.
You may need to train workers to operate and manage the asset. Negotiate with the education department to find out what is involved in ensuring a supply of skilled people, able to operate and maintain the asset and administer loans / grants for the asset.
Consider how the country is going to set up the support systems to enable the asset to function as intended. For example, if a road, what vehicles will be using the road? where will people obtain these vehicles? how will they be maintained and operated? Who will pay for that? What income streams will cover the costs of the asset PLUS using the asset in your country.
Plan for the safe treatment of waste generated by the asset (in both construction and use – eg. disposal of old cars, mitigation of petrol fumes, unused bitumen, water run off, etc.)
Tuesday afternoon (30 july), in addition to the topics listed in our earlier post, we will also have the following, lead by Sally Nugent, former CEO of the Asset Management Council, now Director, Sallyent Pty Ltd, and currently working on a new book on asset management, culture and leadership,
1. How and What to ask: do you know what decision model you are using for your project or plans, and what questions to ask? For example
Why is it important to make decisions promptly? (The Consequences Model)
How do we identify the ‘next big thing’? (The Hype Model)
Why does the printer always break down just before a deadline? (The Results Optimisation Model)
Reference The Decision book Fifty models for strategic thinking
2. Have you considered the context of your project or required solution with ‘open systems’ in mind. How does context influence the questions you ask?
Margaret Wheatley (2006, Leadership and the new science: discovering order in a chaotic world) points out that much of the current thinking in management science is based on Newtonian mechanics – an approach primarily based on reductionism – the best way to understand the whole is to break it up into smaller parts and understand those individual parts. The premise being that if you understand how the heart works and the liver works, you will understand the entire body. The problem is that two critical elements are missing
understanding the individual parts doesn’t provide any understanding of how the parts interact.
very few organisations operate in an environment where they are closed off from external factors.
I am also hoping to add a discussion on real options analysis.
So if you find sitting and listening to others in conferences a bit passé, join us on Tuesday afternoon, where you get to take part in the entertainment!
Infrastructure spending is often justified on the grounds that we are ‘building for the future’. If we truly believe this, and if we are concerned to provide a safe and prosperous world for our children to inherit, then we are running out of time. This is the conclusion of “No Time for Games: Climate Change and Children’s Health’by Doctors for the Environment Australia where they describe the many ways in which periods of excessive heat, disease carrying flood waters, storm events and rising sea levels are seriously impacting the physical and mental well being of our children. This is not a hypothetical. It is happening now. And the recent NEG decision to support coal under the guise of providing ‘reliability’ for renewables is, unfortunately, symptomatic of the hypocrisy of the time.
But maybe we need to DO more? Maybe in our leaderless world we need to take leadership into our own hands? In the past we have tended to leave large scale infrastructure decisions to others. Perhaps this now needs to change? No Time for Games has this to say about Infrastructure:-
Infrastructure and risk reduction
‘Protecting children’s health also requires risk reduction in sectors other than health such as housing, agriculture, urban planning and transportation. Improvement in urban and regional planning design such as relocation away from areas at risk from natural disasters or sea-level rise, or better housing design to reduce heat impacts, are examples of reducing the risk of climate health impacts to children.
Reducing socioeconomic disadvantage in children and improving baseline health, food security and education are fundamentally the best form of climate change adaptation due to their role in making children and families more resilient and better prepared for the environmental risks brought by climate change’
We can all have a say in promoting these changes, directly where we are able, and in voting for measures which improve them and against those which don’t.
That the increasing health effects of climate change disproportionally affect children challenges the most fundamental call of humanity, to nurture its young. Failure to act is a major intergenerational injustice
My thanks to Ian Spangler for drawing my attention to this.